Are we on the verge of a recession in Wales?

Tonight's Wales@work programme on BBC Radio Wales asks the following:

The UK is facing the serious risk of a recession a survey by the British Chamber of Commerce revealed today. In its quarterly survey of around 5000 small to medium businesses the BCC found that rising costs and the credit crunch had seriously affected the cash flow of chamber members around the UK. This comes in the same week as house builder Persimmon has laid off over 1000 workers, and loan company Firstplus has announced 300 job losses in its Cardiff office.

• So are we in Wales feeling the pinch or are we in danger of talking ourselves into a recession?
• How long will it take us to recover from this slump or are we looking at a long summer of discontent for Welsh business?

This is Hivemind's response to the programme.

The current downturn appears very focused on the consumer end of the market – falling house prices, increasing food, petrol and utility bills and interest rates coupled with a lack of liquidity in personal credit (not before time) makes very uncomfortable reading for the consumer, and for those who look after them – retailers, retail banking, travel companies, etc. However those servicing industry, particularly the global markets for goods like steel, appear to be protected because of the fierce demand in China, India and other emerging economies.

In my view this makes parts of Wales such as Cardiff (a local economy supported by financial services and retail) much more at risk than the more industrialized areas of Newport, RCT and Neath/Port Talbot. Cardiff in particular will have a very difficult time as, for a long time, its property prices have raged out of control even in the context of a national property boom.

The next issue for all of us is wages – we all have less disposable income thanks to rising prices (and a cruel and cynical Chancellor) and in a boom we all have a habit of moving our lifestyles upwards to match our increasing disposal income; there is going to be enormous pressure, especially in the public sector and amongst unions, to see wages increase to offset this. However if we give in to wage demands now, all we will do is fuel inflation.

Coupled with that, we have a government in debt despite 10 years of continued strong growth, and the prospect of a falling tax take. How can the government deliver against increased wages in the public sector without increasing taxation, and yet the consumer can’t afford to pay more tax? The only scope for increased tax is in the corporate sector, and on the basis of which businesses are thriving in current conditions, that can only mean an attack on oil and gas. Realistically many of these businesses are sufficiently large to move their HQ offshore, and reduce the exposure to UK tax, so the government has nowhere to turn.

My concern a year ago was how we would survive in 20 years time having put too little away for retirement; the issue has come home to roost a lot sooner than that. An economy driven by the availability of credit has the potential to bring enormous improvements to our lifestyle, and to rip us apart in equal measure. I cannot see a way through the current problems without a great deal of pain. Unlike other recessions, we’ll still have jobs, it’s just that those jobs won’t pay enough for many of us to maintain our standard of living; we won’t be able to sell our houses, or indeed remortgage them, and other types of unsecured credit will be hard to come by.

I hope I'm wrong, and I don't like the thought of being the prophet of doom, but in my view things will get worse before they get better.